Who Pays Business Rates: Landlord or Tenant

In the intricate web of commercial property transactions, one question often comes up for both landlords and tenants alike: who is responsible for paying business rates? This issue has far-reaching implications for businesses and property owners alike, influencing leasing negotiations, financial planning and the overall viability of commercial ventures. In this blog, we delve into the details of UK business rates. ASTOP are experts in the field and we’ll tell you below whether the landlord or tenant should foot the bill.

Before we unravel who pays though, we ought to establish some facts about UK business rates. Business rates are a form of local taxation levied on non-domestic properties such as shops, offices, warehouses, and factories. These rates contribute to local government revenue and are calculated based on a ‘rateable’ value from the UK Valuation Office Agency. This rateable value represents an estimate of the open market rental value of a property on a specific date. The higher the rateable value, the higher the business rates payable. It is for this reason that business rates in London’s financial districts are significantly higher than local shops elsewhere.

Responsibility Based on Agreement

Responsibility for business rates should always be identified in any lease agreement to avoid confusion or mistakes down the line. Generally, however, the tenant is considered liable for the bills with the landlord only picking up the tab in a limited number of circumstances.

Tenant Pays

In the vast majority of commercial leases, particularly those involving standalone buildings or individual units, the tenant is responsible for paying the business rates to the local authority.

This is based on the understanding that the tenant becomes responsible for the day-to-day operation of the property. As well as business rates, they will be accountable for utility bills, maintenance, insurance and so on. In such cases, the tenant is deemed to have control over the premises and therefore bears the financial responsibilities that go with it.

Landlord Pays

On the flip side, there are instances where a landlord may take on the responsibility of paying business rates. This is often the case in multi-let properties, where the landlord retains control over common areas and shared facilities. In such situations, the landlord may choose to be compensated for business rates as part of the overall service charge which tenants contribute to in addition to their rent. This arrangement simplifies matters for tenants, as they pay a single, predictable sum that covers rent, service charges and business rates.


Splitting the Bill

Although unusual, in certain lease agreements, landlords and tenants may opt for a middle-ground approach by sharing the burden of business rates. This could involve a fixed contribution from the tenant, a percentage-based arrangement or a combination of both. The specifics of any agreement will need to be agreed and outlined in any lease agreement.

Negotiating Lease Terms

Paying business rates is not always a one-size-fits-all scenario and the responsibility often hinges on the negotiation skills and leverage of both parties during lease negotiations. When entering into a lease agreement, it is s crucial for landlords and tenants to engage in thorough discussion, reach agreement and sign on the dotted line. This will help avoid future business rate disputes and ensure a fair and mutually beneficial tenancy.

Landlords may use helping with the business rates burden as a negotiating point, especially in competitive leasing markets where securing a tenant is a priority. On the other hand, tenants may seek concessions or adjustments in rent to offset the financial impact of business rates. Striking the right balance requires a clear understanding of market dynamics, property specifics and the unique needs and capabilities of both parties. It is always worth considering expert property and legal advice before proceeding with any agreement.


Business Rates on Empty Properties

Liability for business rates obviously shifts if a tenant ceases to be responsible for the property. It is important to acknowledge that ceasing trading, leaving the property uninhabited, changing the locks or simply moving away does not imply, as far as the law goes, that you have ceased to be responsible for a property. If you, as the tenant, remain named on the lease as such, you are stil liable for business rates. You will remain so until you can prove any tenancy agreement has run its course or been superceded.

Once a property has no tenant, then liability for business rates falls to the landlord. With no rental income, it is in the interests of the landlords to minimise the amount of time this is the case, which is why commercial property is often a fast-moving, highly stakes business.

There are a number of ways landlords can reduce their liability for business rates on empty properties. All commercial landlords are entitled to a three-month ‘grace’ period of relief once a tenant leaves, for example. Other schemes vary from local authority to local authority. Most will provide business rate relief if empty space is donated for community, charity and not-for-profit good causes, which is where ASTOP comes in.

As the commercial property landscape continues to evolve, so will the dynamics of business rate allocation. In this ever-changing environment, staying informed, seeking legal guidance, and engaging in open dialogue will remain essential practices for landlords and tenants alike. Navigating the complex terrain of UK business rates isn’t always easy but it is always seeing what relief and savings you can make when things change.